By Insight Post Uganda
Kampala –Uganda
In a bid to optimise its currency system and address the escalating printing costs of banknotes, the Ugandan government through the Ministry of Finance, Economic Planning and Bank of Uganda has embarked on a crucial cost-benefit analysis.
The primary objective of this assessment is to determine the feasibility of replacing low-denomination banknotes with coins, a move that could potentially revolutionize the country’s monetary landscape.
This strategic decision is driven by the need to explore viable alternatives amidst mounting concerns over the sustainability of paper notes.
In a Letter of Intent jointly released in the June International Monetary Fund (IMF) Fourth Review for Uganda, Finance Minister Matia Kasiaja and Bank of Uganda Executive Director Research Adam Mugume emphasised the importance of conducting a thorough market study to assess which banknotes could be phased out in favour of coins, signalling an impending transformation in Uganda’s currency dynamics.
According to the authorities, the entire Shs1000 note will be gradually withdrawn. The notes are heavily used in transactions and, therefore, soiled heavily, which renders them unusable or reduces their lifespan.
With this, the BOU has to reprint them frequently, yet the cost of printing relative to value is quite high.
However, Dr Mugume did not provide details of when the Central Bank expects to wholly phase out the Shs1,000 paper note and which other notes have been considered for replacement as indicated in the June 6 letter to Ms Kristalina Georgieva, the IMF managing director.
In 2012, Bank of Uganda issued a Shs1,000 coin as part of events to commemorate 50 years of Uganda’s independence. The coin, even as it has been less visible compared to the paper notes, has since remained in circulation.
Even though coins hold the status of legal tender, a significant majority of people still favour banknotes as their preferred form of currency. One of the primary reasons for this inclination is the cumbersome nature of coins when carried in bulk.
Unlike banknotes which are lightweight and easy to manage, coins can quickly become burdensome, especially when one needs to carry a considerable amount for daily transactions or larger purchases. The added weight can be inconvenient and impractical, making banknotes a more practical choice for most individuals.
Moreover, the sheer volume of coins required to match the value of banknotes can further contribute to the preference for the latter, as it takes up more space and requires additional effort to handle. Consequently, despite their legal validity, coins often take a backseat to banknotes in the realm of favoured currency options.
The Central Bank has previously replaced other small currency denominations ranging from Shs1 to Shs500 with coins, citing durability and easy handling.
In the 2021/22 Annual Report, the Bank of Uganda indicated the cost of issuing currency, including printing and circulation, had increased by UGX24.4b or 16.5 per cent in the period.
For instance, the report noted currency-related costs had increased from UGX147.5b during the 2020/21 financial year to Shs171.9b due to a rise in demand for cash following the reopening of the economy and the rise in inflation.
Digital Transactions Save
In July 2020, the Central Bank (Bank Of Uganda) envisioned reducing this expense by at least half over the next five years. The government took measures to save approximately USD 48 million (UGX178.5 billion), which was being spent annually on printing currency. The aim was to encourage Ugandans to adopt digital payment platforms for their transactions instead of relying on physical cash.
According to Dr. Mugume, the country’s expenses for printing money notes were substantial. However, the main obstacle hindering this transition was the apprehension among people regarding the safety of digital platforms like mobile money and internet transactions. Many individuals, even after receiving money on their phones, tended to withdraw it immediately, fearing it wasn’t secure on the digital platform.
Uganda currently prints its currency in foreign countries like Germany and France, incurring significant costs related to printing, security, and transportation, which ultimately burden the taxpayers. BOU emphasised that embracing digital payment methods, such as using credit cards to pay for purchases instead of carrying cash, could effectively reduce these expenses.
Despite many Ugandans using mobile money for sending and receiving money, a considerable number still hesitated to utilize their phones for purchasing items at supermarkets. Additionally, some individuals were wary of using cards due to associated costs.
To achieve the envisioned savings and promote the adoption of digital transactions, efforts were being made to overcome these hesitations and encourage a shift towards cashless modes of payment.
END
English 